QED Working Paper Number
1527

The note provides an initial theoretical explanation of the way norm regularizations

may provide a means of controlling the non-asymptotic probability of False Dominance

classification for empirically optimal portfolios satisfying empirical Stochastic Dominance

restrictions in an iid setting. It does so via a dual characterization of the norm-constrained

problem, as a problem of Distributional Robust Optimization. This enables the use of

concentration inequalities involving the Wasserstein distance from the empirical distribu-

tion, to obtain an upper bound for the non-asymptotic probability of False Dominance

classification. This leads to information about the minimal sample size required for this

probability to be dominated by a predetermined significance level.

Author(s)
JEL Codes
Keywords
:Portfolio optimization, Stochastic dominance, ℓp regularization, Wasserstein dis- tance, Distributionally robust optimization, Concentration inequality, False dominance clas- sification.
Working Paper